Marsh & McLennan, the nation's largest insurance broker, last week agreed to an $850 million settlement with New York Attorney General Eliot Spitzer for conspiring to rig insurance bids and steer business to preferred insurers in exchange for lucrative kickbacks.

The settlement was the largest brought against an individual firm during Spitzer's tenure as Gotham's chief regulator and looks to be a blueprint for all future cases involving abusive insurance sales practices. Under the terms of the deal, Marsh will not pay a fine or a penalty but, rather, must make annual contributions to a restitution fund over the next four years to be returned to policyholders harmed by the scheme. An initial payment of $255 million is due June 1.

Sorry Apology

Marsh apologized for the actions of a handful of its 60,000 employees, calling their conduct both "shameful" and "unlawful." The New York-based company vowed to make the necessary business and governance reforms to regain the trust of its clients. "This settlement culminates a dark period in this company's history," said Chief Executive Officer Michael Cherkasky on a conference call with reporters.

Still, Marsh stopped short of admitting any wrongdoing, an obvious attempt to prevent an onslaught of class-action lawsuits and further sanctions from other state regulators. Interestingly enough, the apology was included in the Spitzer agreement but was noticeably absent from Marsh's press release, its Web site and its 8-K filing with the Securities and Exchange Commission. Marsh spokeswoman Barbara Perlmutter explained that the apology was likely omitted for "redundancy" purposes.

When questioned about the perceived ambiguity of the terms - apologizing for breaking the law but not admitting wrongdoing - Cherkasky said that it was a legal distinction that was a "critical factor" in reaching an agreement with regulators. The apology, he said, was made on behalf of the handful of employees that engaged in the unlawful behavior and was not an admission of corporate wrongdoing. "We've never been a company that condones price-fixing or fake bids," he explained. "But sometimes, individuals make mistakes."

His response was particularly curious because former Marsh CEO Jeffrey Greenberg was forced to resign just days after the suit was filed by the attorney general's office. Had there been infractions made by a few bad apples, why would there be a need to get rid of the head of the company? Both Spitzer and Marsh have said that Greenberg's resignation was a necessary step in avoiding criminal prosecution

Still, it raises serious questions about accountability: For example, at what point do the actions of individuals within a firm justify corporate wrongdoing?

The fact that there was no penalty or fine in this case is also peculiar. In previous cases against mutual funds, Spitzer has imposed civil penalties in the form of fines or reduced management fees. Since this was not the first time Marsh ran afoul of regulators, having seen its Putnam Investments subsidiary sued for abusive mutual fund trading practices, Spitzer likely did not want to see the company collapse. Spitzer's office did not return phone calls seeking comment.

Further monetary penalties would only have put the company in dire financial straits, which would inflict even more pain on its already defrauded customers. More important to Spitzer was that Marsh cleans up its act and is able to adapt a new business model. "The company has embraced restitution and reform as a way of making a clean break from the practices that misled and harmed its clients in the past," Spitzer said in a release.

Blurred Distribution

Spitzer's lawsuit centered on incentive payments known as market service agreements for providing increased business and boosting profits to the insurance companies. Marsh had promised to deliver unbiased advice to its commercial insurance customers, but instead, Spitzer alleged, it betrayed that trust by accepting undisclosed kickbacks from insurance firms for steering business their way and inflating prices. In addition to reimbursing customers, Marsh was forced to make fundamental changes to the way it does business.

According to the settlement, Marsh agreed to disclose in "plain, unambiguous written language" all payments received in connection with its insurance coverage. Secondly, all forms of contingent compensation have been effectively banned. Marsh also pledged not to accept anything of material value from insurance companies such as credits, loans, gifts, vacations or the payment of employee salaries. In addition, the company is prohibited from setting up pay-to-play and bid-rigging arrangements as well as reinsurance brokerage leveraging.